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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2002
or
[_] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ___________ to __________
Commission File Number 1-2376
FMC CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-0479804
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1735 Market Street
Philadelphia, Pennsylvania 19103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 215/299-6000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
Common Stock, $0.10 par value New York Stock Exchange
Chicago Stock Exchange
Preferred Share Purchase Rights Pacific Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [_]
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF JUNE 30, 2002.
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Common Stock, par value $0.10 per share 35,086,303
-1-
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FMC Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Income
(in millions, except per share data)
(unaudited) (unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
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2002 2001 2002 2001
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Revenue $482.4 $ 523.2 $916.6 $ 970.4
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Cost of sales or services 356.2 364.2 679.1 690.5
Selling, general and administrative expenses 57.7 63.9 115.5 125.6
Research and development expenses 20.4 25.3 41.0 48.9
Asset impairments (Note 7) -- 323.1 -- 323.1
Restructuring and other charges (Note 8) 7.4 175.0 14.4 176.0
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Total costs and expenses 441.7 951.5 850.0 1,364.1
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Income (loss) from continuing operations before minority interests, interest
expense, net income taxes and cumulative effect of change in
accounting principle 40.7 (428.3) 66.6 (393.7)
Minority interests 0.6 0.2 1.1 0.6
Interest expense, net 17.0 15.4 32.4 29.8
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Income (loss) from continuing operations before cumulative effect of a change in
accounting principle 23.1 (443.9) 33.1 (424.1)
Provision (benefit) for income taxes 3.9 (145.0) 4.9 (139.6)
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Income (loss) from continuing operations before cumulative effect of
change in accounting principle 19.2 (298.9) 28.2 (284.5)
Discontinued operations, net of income taxes (Note 2) -- (0.9) -- (40.9)
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Income (loss) before cumulative effect of change in accounting principle 19.2 (299.8) 28.2 (325.4)
Cumulative effect of change in accounting principle, net of income taxes (Note 3) -- -- -- (0.9)
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Net income (loss) $ 19.2 $(299.8) $ 28.2 $ (326.3)
===================================================================================================================================
Basic earnings (loss) per common share (Note 12)
Continuing operations $ 0.59 $ (9.59) $ 0.88 $ (9.19)
Discontinued operations -- (0.03) -- (1.32)
Cumulative effect of change in accounting principle (Note 3) -- -- -- (0.03)
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Net income (loss) $ 0.59 $ (9.62) $ 0.88 $ (10.54)
===================================================================================================================================
Diluted earnings (loss) per common share (Note 12)
Continuing operations $ 0.57 $ (9.59) $ 0.85 $ (9.19)
Discontinued operations -- (0.03) -- (1.32)
Cumulative effect of change in accounting principle (Note 3) -- -- -- (0.03)
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.57 $ (9.62) $ 0.85 $ (10.54)
===================================================================================================================================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-2-
June 30, December 31,
FMC Corporation and Consolidated Subsidiaries 2002 2001
Condensed Consolidated Balance Sheets (in millions) (unaudited)
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Assets
Current assets:
Cash and cash equivalents $ 50.3 $ 23.4
Trade receivables, net of allowance of $9.9 in 2002 and $8.4 in 2001 (Note 15) 407.9 441.7
Inventories 189.4 207.2
Other current assets 111.1 99.6
Deferred income taxes 50.0 48.4
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Total current assets 808.7 820.3
Investments 34.7 25.2
Property, plant and equipment, net (Note 6) 1,068.2 1,087.8
Goodwill (Note 3) 123.0 113.5
Other assets 143.5 135.6
Deferred income taxes 288.6 294.8
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Total assets $2,466.7 $2,477.2
================================================================================================================================
Liabilities and stockholders' equity
Current liabilities:
Short-term debt (Note 9) $ 234.8 $ 136.5
Accounts payable, trade and other 219.1 327.7
Accrued and other liabilities 300.7 337.0
Guarantees of vendor financing (Note 16) 35.4 56.0
Current portion of long-term debt (Note 9) 100.3 135.2
Current portion of accrued pensions and other postretirement benefits 20.8 18.2
Income taxes payable 27.0 27.8
- --------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 938.1 1,038.4
Long-term debt, less current portion (Note 9) 623.2 651.8
Accrued pension and other postretirement benefits, less current portion 102.0 109.2
Reserves for discontinued operations (Notes 10 and 11) 184.6 201.9
Other long-term liabilities (Notes 10 and 11) 184.3 212.3
Minority interests in consolidated companies 43.0 44.8
Commitments and contingent liabilities (Notes 10, 11, 14 and 16)
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Stockholders' equity
Preferred stock, no par value, authorized 5,000,000 shares; no shares issued in 2002 or 2001 -- --
Common stock, $0.10 par value, authorized 130,000,000 shares in 2002 and 2001; issued
43,001,994 shares in 2002 and 39,234,578 shares in 2001 4.3 3.9
Capital in excess of par value of common stock 334.1 217.5
Retained earnings 720.0 691.8
Accumulated other comprehensive loss (Note 13) (159.8) (186.8)
Treasury stock, common, at cost; 7,915,691 shares in 2002 and 7,929,281 shares in 2001 (507.1) (507.6)
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Total stockholders' equity 391.5 218.8
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Total liabilities and stockholders' equity $2,466.7 $2,477.2
================================================================================================================================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-3-
FMC Corporation and Consolidated Subsidiaries (unaudited)
Condensed Consolidated Statements of Cash Flows Six Months Ended
(in millions) June 30,
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2002 2001
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Cash provided (required) by operating activities of continuing operations:
Income from continuing operations before cumulative effect of change in accounting principle $ 28.2 $(284.5)
Adjustments to reconcile income from continuing operations before cumulative effect of change in
accounting principle to cash provided (required) by operating activities of continuing operations:
Depreciation and amortization 55.4 65.4
Asset impairments (Note 7) -- 323.1
Restructuring and other charges (Note 8) 14.4 176.0
Deferred income taxes 4.6 (205.7)
Minority interests 1.1 2.4
Other 3.5 3.1
Changes in operating assets and liabilities, excluding the effect of acquisitions and divestitures of
businesses:
Accounts receivable sold (Note 15) 5.0 (1.0)
Trade receivables, net 28.8 (25.8)
Inventories 13.8 (23.7)
Other current assets and other assets (30.6) (55.4)
Accounts payable, trade, accrued and other liabilities and other long-term liabilities (172.3) (51.8)
Financing commitments to Astaris (Note 8 and 16) (12.6) (16.6)
Income taxes payable (0.8) 5.6
Accrued pension and other postretirement benefits, net (6.3) (18.7)
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Cash required by operating activities (67.8) (107.6)
Cash required by discontinued operations (Note 10) (19.7) (89.4)
====================================================================================================================================
-4-
FMC Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)
(in millions)
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Cash provided (required) by investing activities:
Capital expenditures $ (35.3) $ (92.2)
Proceeds from disposal of property, plant and equipment 5.9 11.4
Increase in investments (7.5) (16.6)
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Cash required by investing activities (36.9) (97.4)
===================================================================================================================================
Cash provided (required) by financing activities:
Net proceeds from issuance of commercial paper (28.5) 11.3
Net increase under committed credit facilities 102.0 (5.9)
Net increase (decrease) in other short-term debt 24.8 (10.3)
Increase in long-term debt -- 20.4
Contribution from Technologies, net of funding to Technologies (Note 2) -- 393.8
Repayment of long-term debt (63.7) (128.6)
Distributions to minority partners (1.8) (2.3)
Net proceeds from issuance of common stock (Note 12) 101.3 --
Issuances of common stock related to compensation programs 16.2 30.0
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Cash provided by financing activities 150.3 308.4
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Effect of exchange rate changes on cash and cash equivalents 1.0 (0.4)
===================================================================================================================================
Increase in cash and cash equivalents 26.9 13.6
Cash and cash equivalents, beginning of period 23.4 7.3
===================================================================================================================================
Cash and cash equivalents, end of period $ 50.3 $ 20.9
===================================================================================================================================
Supplemental disclosure of cash flow information: Cash paid for interest
was $31.5 million and $50.6 million for the six months ended June 30,
2002 and 2001, respectively, and cash paid for income taxes, net of
refunds, was $9.2 million and $15.7 million for the six months ended June
30, 2002 and 2001, respectively.
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-5-
FMC Corporation and Consolidated Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1: Financial Information and Accounting Policies
The condensed consolidated balance sheet as of June 30, 2002, and the related
condensed consolidated statements of income and cash flows for the interim
periods ended June 30, 2002 and 2001 have been reviewed by our independent
accountants. The review is described more fully in their report included herein.
In the opinion of management the condensed consolidated financial statements
have been prepared in conformity with accounting principles generally accepted
in the United States applicable to interim period financial statements and
reflect all adjustments necessary for a fair statement of the company's results
of operations and cash flows for the interim periods ended June 30, 2002 and
2001 and of its financial position as of June 30, 2002. All such adjustments are
of a normal recurring nature. The results of operations for the interim periods
ended June 30, 2002 and 2001 are not necessarily indicative of the results of
operations for the full year.
The company's accounting policies are set forth in detail in Note 1 to the 2001
consolidated financial statements on Form 10-K. Certain prior year amounts have
been reclassified to conform to the current quarter's presentation. Effective
January 1, 2002, FMC adopted Statement of Financial Accounting Standards (SFAS)
No. 142, "Goodwill and Other Intangible Assets" and SFAS No. 144 "Accounting for
the Impairment or Disposal of Long-Lived Assets. " In the second quarter of 2002
the company elected to early adopt SFAS No. 145 "Rescission of FASB Statements
Nos. 4, 44 and 64, Amendment of FASB No. 14, and Technical Corrections." (See
Note 3.)
Note 2: FMC's Reorganization
In October 2000, the company announced it was initiating a strategic
reorganization (the "reorganization" or "separation") that ultimately would
split the company into two independent publicly held companies - a chemical
company and a machinery company. The remaining chemical company, which continues
to operate as FMC Corporation, includes the Agricultural Products, Specialty
Chemicals and Industrial Chemicals business segments. The new machinery company,
FMC Technologies, Inc. ("Technologies") includes FMC's former Energy Systems and
Food and Transportation Systems business segments. On June 1, 2001, in
accordance with the Separation and Distribution Agreement (the "Agreement")
between the two companies, FMC distributed substantially all of the net assets
comprising the businesses of Technologies. On June 19, 2001, Technologies
completed an initial public offering ("IPO") of 17% of its equity through the
issuance of common stock. FMC continued to own the remaining 83% of Technologies
through December 31, 2001. (See Notes 2 and 3 to our 2001 consolidated financial
statements.)
Subsequent to the IPO, Technologies made payments of $393.8 million to FMC, net
of contributions from FMC, in exchange for the net assets distributed to
Technologies on June 1, 2001. The payments contributed to Technologies by FMC
were to supplement Technologies' operating cash needs prior to the spin-off. The
payments received by FMC were used to retire short-term and long-term debt.
During the second quarter of 2001, FMC recognized a $140.0 million gain in
stockholders' equity on the sale of Technologies' stock.
The company recorded an after-tax loss from discontinued operations of $0.9
million and $40.9 million, respectively, for the three and six months ended June
30, 2001 related to the spun-off Technologies business, including after-tax
interest expense of $4.4 million and $8.6 million, respectively, which was
allocated to discontinued operations in accordance with Accounting Principles
Board Statement No. 30 and later relevant accounting guidance, and an additional
income tax provision of $28.8 million related to the reorganization of our
worldwide entities in anticipation of the separation of Technologies from FMC.
Note 3: Recently Adopted Accounting Pronouncements
Prior to January 1, 2002 the company amortized goodwill and identifiable
intangible assets (such as trademarks) on a straight-line basis over their
estimated useful lives not to exceed 40 years. The recoverability of the net
book value of these assets was periodically reviewed based on the expected
future undiscounted cash flows.
On January 1, 2002 the company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." With the adoption of SFAS No. 142, goodwill and other
indefinite intangible assets ("intangibles") are no longer subject to
amortization, rather they are subject to at least an annual assessment for
impairment by applying a fair value based test. In the second quarter FMC
completed its transitional goodwill impairment tests required by SFAS No. 142.
FMC recorded no impairments of its goodwill and indefinite life intangibles
based on these tests. The company will continue its goodwill impairment tests,
annually, beginning in the fourth quarter of 2002, in accordance with the
requirements of SFAS No. 142.
-6-
Goodwill amortization was $4.2 million, or $0.14 per diluted share in 2001.
Goodwill amortization for the three and six months ended June 30, 2001 was $1.0
million or $0.03 per diluted share and $2.1 million or $0.07 per diluted share,
respectively. Goodwill amortization for the three and six months ended June 30,
2002 would have been approximately $1.0 million and $2.1 million, respectively.
Goodwill at June 30, 2002 and December 31, 2001 was $123.0 million and $113.5
million, respectively. The majority of FMC's goodwill is attributed to an
acquisition in the Specialty Chemicals segment. There are no material indefinite
life intangibles, other than goodwill, at June 30, 2002.
FMC's definite life intangibles totaled $7.5 million at June 30, 2002. These
definite life intangibles are allocated among FMC's segments as follows: $3.4
million in Agricultural Products, $2.7 million in Specialty Chemicals and $1.4
million in Industrial Chemicals. All definite life intangible assets are
amortizable and consist primarily of patents, industry licenses and other
intangibles.
On January 1, 2002 the company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." This Statement establishes a single accounting model,
based on the framework established in SFAS No. 121, for long-lived assets to be
disposed of by sale. The Statement retains most of the requirements of SFAS No.
121 related to the recognition of the impairment of long-lived assets to be held
and used. There was no impact of adopting SFAS No. 144 in 2002.
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements Nos.
4, 44 and 64, Amendment of FASB No. 14, and Technical Corrections." The
Statement rescinds or amends a number of existing authoritative pronouncements
to make various technical corrections, clarify meanings, or describe their
applicability under changed conditions. In the second quarter of 2002, with the
retirement of its Meridian Gold debentures (as discussed in Note 9 below), FMC
elected to early adopt SFAS No. 145. FMC recorded a $3.1 million loss ($1.9
million after-tax) related to the early retirement of these debentures in its
total costs and expenses in accordance with this statement.
On January 1, 2001, the company implemented SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and
SFAS No. 138 (collectively, the "Statement"). The Statement requires the company
to recognize all derivatives in the consolidated balance sheets at fair value,
with changes in the fair value of derivative instruments to be recorded in
current earnings or deferred in other comprehensive income, depending on the
type of hedging transaction and whether a derivative is designated as an
effective hedge. In accordance with the provisions of the Statement, the company
recorded a first-quarter 2001 loss from the cumulative effect of a change in
accounting principle of $0.9 million after-tax in the company's consolidated
statement of earnings, and a deferred gain of $16.4 million after-tax in
accumulated other comprehensive loss.
Note 4: New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. FMC is required to adopt the provisions of this pronouncement no later
than the beginning of 2003 and is evaluating the potential impact of adopting
SFAS No. 143.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This standard addresses the accounting and
reporting for costs of so-called exit activities (including restructuring) and
for the disposal of long-lived assets. The standard changes some of the criteria
for recognizing a liability for these activities. It is effective beginning in
2003 with the liability recognition criteria under the standard applied
prospectively. The company is expecting to adopt SFAS No. 146 when required and
is currently evaluating the potential impact of adoption on its accounting
policies regarding exit and disposal activities.
Note 5: Financial Instruments and Risk Management
Hedge ineffectiveness and the portion of derivative gains or losses excluded
from assessments of hedge effectiveness, related to the company's outstanding
cash flow hedges and which were recorded to earnings during the three and six
months ended June 30, 2002, were less than $0.1 million. For the three months
ended June 30, 2002 and June 30, 2001, the net deferred hedging loss in
accumulated other comprehensive loss was $6.3 million and $12.1 million, of
which approximately $4.6 million of net losses are expected to be recognized in
earnings during the twelve months ended June 30, 2003, at the time the
underlying hedged transactions are realized, and of which net losses of $1.7
million are expected to be recognized at various times subsequent to
-7-
June 30, 2003 and continuing through November 30, 2005.
Note 6: Property, Plant and Equipment
Property, plant and equipment consisted of the following, in millions:
June 30,
2002 December 31,
(unaudited) 2001
--------- ------------
Property, plant and equipment, at cost $ 2,581.4 $ 2,538.2
Accumulated depreciation (1,513.2) (1,450.4)
--------- ---------
Property, plant and equipment, net $ 1,068.2 $ 1,087.8
========= =========
Note 7: Asset Impairments
Asset impairments totaling $323.1 million ($233.8 million after-tax) were
recorded in the second quarter of 2001. Based upon a comprehensive review of
FMC's long-lived assets the company recorded asset impairment charges of $211.9
million related to its U.S. based phosphorus business. The components of asset
impairments related to this business include a $171.0 million impairment of
environmental assets built to comply with a RCRA Consent Decree ("Consent
Decree") at the Pocatello, Idaho facility and a $36.5 million impairment charge
for the company's investment in Astaris LLC ("Astaris"), the company's
phosphorus joint venture with Solutia, Inc. Driving these charges were a decline
in market conditions, the loss of a potential site on which to develop
economically viable second purified phosphoric acid plant and its agreement to
pay into a fund for the Shoshone-Bannock Tribes as a result of an agreement to
support a proposal to amend the Consent Decree to permit the earlier closure of
the largest remaining waste disposal pond at Pocatello. In addition, FMC
recorded an impairment charge of $98.9 million related to its Specialty
Chemicals segment's lithium operations in Argentina. The company established
this operation, which includes a lithium mine and processing facilities,
approximately five years ago in a remote area of the Andes Mountains. With the
entry of a South American manufacturer into this business, resulting in
decreased revenues and following the continuation of other unfavorable market
conditions, the company's lithium assets in Argentina became impaired, as the
total capital invested is not expected to be recovered. An additional $12.3
million of charges related to the impairment of assets in FMC's cyanide
operations as a result of weakening economic conditions effecting this business.
Note 8: Restructuring and other charges
In the second quarter of 2002, the company recorded restructuring and other
charges before tax of $7.4 million compared to $175.0 million in the second
quarter of 2001. The company recorded $14.4 million and $176.0 million,
respectively, for the six months ended June 30, 2002 and 2001.
The second quarter of 2002 charge included $2.2 million before tax of
restructuring charges related to severance and other costs in the Industrial
Chemicals segment and a $2.1 million charge for other costs including transition
costs related to a change in benefits provider, which was a direct result of the
company's spin-off of Technologies. Also recorded as part of the second quarter
2002 charge was $3.1 million before tax attributed to the redemption of 6.75%
exchangeable senior subordinated debentures related to Meridian Gold completed
on June 3, 2002 (see Note 9.)
Of the $7.0 million of restructuring charges in the first quarter of 2002, $2.4
million related to severance and other costs of idling the Agricultural
Product's sulfentrazone plant. In the Industrial Chemicals segment, the
mothballing of the Granger caustic facility in Green River, Wyoming and other
restructuring activities resulted in $3.4 million of severance and other costs.
The remaining charges resulted from reorganization costs of $1.2 million related
to the spin-off and distribution of Technologies stock.
During the second quarter of 2001, FMC recorded $175.0 million in restructuring
and other charges including $160.0 million related to its Industrial Chemicals
segment's U.S.-based phosphorus business. The components included in
restructuring and other charges related to the phosphorus business were as
follows: a $68.7 million reserve for the further required Consent Decree
spending at the Pocatello site; $42.7 million of financing obligations to the
Astaris joint venture and other related costs; and a $40.0 million reserve for
payments to the Shoshone-Bannock Tribes and $8.6 million of other related
charges. In addition, restructuring charges for the quarter included $8.0
millions related to FMC's corporate reorganization. The remaining charges of
$7.0 million were for the restructuring of two smaller chemical facilities.
The restructuring charges in the first quarter of 2001 related to corporate
reorganization costs and several minor restructuring activities within the
Industrial Chemicals segment.
-8-
Reserves for restructuring and other charges were $98.3 million and $119.2
million at June 30, 2002 and December 31, 2001, respectively. Restructuring
spending in 2002 of $8.7 million related to the 2002 programs and $39.2 million
related to programs initiated in the prior year. Spending during the six months
ended June 30, 2002 was primarily for workforce reductions, additional
reorganization costs, finance commitments to our joint venture Astaris and
shutdown costs.
The following table shows a rollforward of restructuring and other reserves for
the quarter ended June 30, 2002 and the related spending and other changes:
Phosphorus Related
----------------------------------------
Pocatello
Shutdown,
Remediation Financing Workforce-related and
and Other Tribal Commitments Facility Shutdown FMC's
Costs Fund to Astaris Costs Reorganization Total
----- ---- ---------- ----- -------------- -----
2002 2001 2002 2001
---- ---- ---- ----
Reserve at12/31/2001 $ 58.9 $10.0 $ 28.0 $ -- $13.7 $ -- $ 8.6 $119.2
Increase in Reserves -- -- -- 8.0 -- 3.3 -- 11.3
Cash Payments (17.0) -- (12.6) (7.5) (5.9) (1.2) (3.7) (47.9)
Reclasses and Other (1) 16.7 -- -- -- -- -- -- 16.7
Non-cash Charges (1.0) -- -- -- -- -- -- (1.0)
------ ----- ------- ----- ----- ----- ----- ------
Reserve at
6/30/2002 $ 57.6 $10.0 $ 15.4 $ 0.5 $ 7.8 $ 2.1 $ 4.9 $ 98.3
====== ===== ======= ===== ===== ===== ===== ======
(1) Balance classified as current liabilities at December 31, 2001
reclassified to restructuring reserves in 2002.
Note 9: Debt
The company has $240.0 million in committed credit under a 364-day
non-amortizing revolving credit agreement due in December 2002. The total amount
outstanding under the revolver at June 30, 2002 was $170.0 million compared to
$68.0 million at December 31, 2001. Proceeds from the completion of FMC's second
quarter equity offering of $101.3 million, net of issuance expenses, were used
to reduce outstanding borrowings under the revolver (see Note 12). In January
2002, FMC obtained a supplemental $50.0 million committed credit facility to
meet short-term seasonal financing needs. This supplemental credit facility has
been amended to reduce availability to $25.0 million. This supplemental facility
expires on August 31, 2002. Both committed credit agreements contain financial
covenants related to leverage (measured as the ratio of debt to adjusted
earnings), interest coverage (measured as the ratio of interest expense to
adjusted earnings) and consolidated net worth. As of June 30, 2002, FMC was in
compliance with all financial covenants on both facilities.
On May 3, 2002, FMC published notice of a mandatory call for redemption on June
3, 2002 of its 6.75% exchangeable senior subordinated debentures, outstanding in
the principal amount of $28.8 million. From May 21, 2002 to May 31, 2002,
holders of $26.0 million of these debentures exercised their right to forgo
accrued but unpaid interest and exchange their debentures for common shares of
Meridian Gold, Inc., a Canadian company trading on the New York Stock Exchange
(NYSE: MDG) and successor to our former subsidiary, at a price of $15.125 per
share, subject to certain adjustments. Because FMC does not hold any shares of
Meridian Gold, Inc. it exercised its right to pay the fair market value, subject
to certain adjustments, of the Meridian Gold common shares in cash. Because the
price of Meridian Gold common shares rose substantially above the exchange price
of $15.125, FMC was required to pay an amount above the principal amount of the
debentures exchanged, which amount has resulted in a net charge of approximately
$3.1 million ($1.9 million after-tax) in the second quarter of 2002. The
remaining $2.8 million of debentures were redeemed on June 3, 2002 at the
principal amount thereof plus accrued interest.
During the six months ended June 30, 2002, the company made payments of $10.4
million and $25.0 million, in the first and second quarter, respectively, for
scheduled maturities of long-term debt. An additional payment of $99.5 million
is required in the fourth quarter of 2002.
Short-term debt increased to $234.8 million at June 30, 2002 compared to $136.5
million at December 31, 2001. Short-term debt can consist of commercial paper,
borrowings under committed credit facilities and foreign bank borrowings. Since
the lowering of FMC's short-term credit rating by Moody's Investors Service,
Inc. ("Moody's") on June 13, 2002, FMC ceased offerings under our commercial
paper program and repaid maturities by borrowing under our $240.0 million
committed revolving credit agreement. At June 30, 2002, no commercial paper was
outstanding compared to $33.0 million at December 31, 2001 and $57.2 million at
March 31, 2002. Also contributing to the company's increased short-term debt was
a decrease in availability under
-9-
FMC accounts receivable financing program at June 30, 2002 primarily resulting
from the downgrade in our credit rating.
At June 30, 2002 there was $44.0 million principal amount outstanding of
variable rate industrial and pollution control revenue bonds supported by bank
letters of credit. The letters of credit generally have a term of thirteen
months and extend each month for an additional month unless and until the bank
sends us a letter of non-renewal. No such notices had been received for the
letters of credit outstanding at June 30, 2002.
The company is finalizing its refinancing plans and expects to have its
financing completed prior to the bond maturities and the expiration of its
committed revolving credit facility in the fourth quarter of 2002.
In 1998, a universal shelf registration statement became effective, under which
$500.0 million of debt or equity securities could be offered. Unused capacity of
$243.4 million remains available under the 1998 shelf registration at June 30,
2002.
Note 10: Other Long-Term Liabilities and Reserves for Discontinued Operations
Reserves for discontinued operations at June 30, 2002 and December 31, 2001 were
$184.6 million and $201.9 million, respectively. At June 30, 2002, substantially
all discontinued operations reserves were related to environmental,
post-employment benefit, self-insurance and other long-term obligations
associated with operations discontinued between 1976 and 1997.
In the first quarter of 2001 FMC paid an $80.0 million settlement of litigation
related to the company's discontinued defense operations.
Other long-term liabilities at June 30, 2002 and December 31, 2001 were $184.3
million and $212.3 million, respectively, and included environmental reserves
related to the company's continuing businesses, restructuring reserves and
compensation and benefits reserves. (See Note 3 to the company's 2001
consolidated financial statements and Note 11 below.)
Note 11: Environmental Obligations
The company has provided reserves for potential environmental obligations, which
management considers probable and for which a reasonable estimate of the
obligation could be made. Accordingly, reserves of $238.5 million and $260.4
million, before recoveries, have been provided at June 30, 2002 and December 31,
2001, respectively. The long-term portions of these reserves, totaling $210.7
million and $217.3 million, are included in other long-term liabilities and
reserves for discontinued operations. The short-term portion of these
obligations is recorded as accrued and other liabilities.
Cash recoveries of $6.7 million have been recorded as realized claims against
third parties in 2002. Total cash recoveries recorded for the year ended
December 31, 2001 were $12.5 million. At June 30, 2002 and December 31, 2001
reserves for recoveries were $34.8 million and $41.5 million, respectively, the
majority of which relate to existing contractual arrangements with U.S.
government agencies and insurance carriers. These reserves are recorded as an
offset to the reserve for discontinued operations and other long-term
liabilities.
The company has estimated that reasonably possible contingent environmental
losses may exceed amounts accrued by as much as $70.0 million at June 30, 2002.
Obligations that have not been reserved for may be material to any one quarter's
or year's results of operations in the future. Management, however, believes the
liability arising from the potential environmental obligations is not likely to
have a materially adverse effect on the company's liquidity or financial
condition and may be satisfied over the next twenty years or longer.
A more complete description of the company's environmental contingencies and the
nature of its potential obligations are included in Notes 1 and 13 to FMC's
December 31, 2001 consolidated financial statements.
Note 12: Capital Stock
On August 27, 1999, the Board of Directors authorized $50.0 million of open
market repurchases of FMC common stock, which the company has not commenced as
of June 30, 2002. Depending on market conditions, the company may, from time to
time, purchase additional shares of its common stock on the open market.
On June 6, 2002 the company issued 3,250,000 shares of common stock at a net
price per share of $31.25. Net proceeds from the issuance were approximately
$101.3 million. The proceeds were used to reduce outstanding borrowings under
the company's $240.0 committed revolving credit facility.
-10-
For the three and six months ended June 30, 2002, the company had 32,592,684 and
32,084,284, respectively, of average shares outstanding. In addition, for the
three and six months ended June 30, 2002 FMC had 964,623 and 953,644 of
additional shares assuming conversion of stock options and other dilutive
potential common shares (calculated under the treasury stock method).
Note 13: Comprehensive Income (Loss)
Comprehensive income (loss) includes all changes in stockholders' equity during
the period except those resulting from investments by owners and distributions
to owners. The company's comprehensive income (loss) for the three and six
months ended June 30, 2002 and 2001 consisted of the following:
(in millions)
Three Months Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
---- ---- ---- ----
Net income (loss) $19.2 $(299.8) $28.2 $(326.3)
Other comprehensive earnings (loss):
Foreign currency translation adjustment 39.3 15.2 16.5 8.6
Net deferral of hedging gains (losses) 3.4 (16.8) 12.4 (28.4)
Cumulative effect of a change in accounting
principle (Note 3) -- -- -- 16.4
----- ------- ----- -------
Comprehensive income (loss) $61.9 $(301.4) $57.1 (329.7)
===== ======= ===== =======
Note 14: Related-Party Transactions
FMC's chemical and machinery businesses became two independent companies in 2001
through the spin-off of Technologies (see Note 2 for a discussion of FMC's
reorganization). Prior to Technologies' IPO, FMC and Technologies entered into
certain agreements for the purposes of governing the ongoing relationship
between the two companies (see Note 18 to the 2001 consolidated financial
statements). FMC and Technologies continue to engage in transition services for
areas such as benefits, insurance and administrative services. The cost of these
activities were not material as of June 30, 2002.
A guaranty agreement, executed on December 31, 2001, provides for the
performance by Technologies of certain obligations under several contracts, debt
instruments and reimbursement agreements. Prior to the spin-off, these
obligations related to the businesses of Technologies. As of June 30, 2002, this
guarantee agreement covered obligations totaling $127.1 million compared to
$289.0 million at December 31, 2001. Under the Separation and Distribution
Agreement and guaranty agreement, Technologies has indemnified FMC for these
obligations and any related legal fees.
Note 15: Accounts Receivable Financing
The company sells trade receivables without recourse through its wholly owned,
bankruptcy-remote subsidiary, FMC Funding Corporation. This subsidiary then
sells the receivables to a financing company under an accounts receivable
financing facility on an ongoing basis. Availability under the program was
reduced upon the lowering of FMC's credit rating and terminates upon a rating of
Ba2 by Moody's or BB by S&P. The financing from this facility totaled $84.8
million at June 30, 2002, $79.0 million at December 31, 2001 and $112.0 million
at June 30, 2001. Subsequent to June 30, 2002 the company extended the term of
this securitization through August 2003.
Note 16: Commitments and Contingencies
During the third quarter of 2000, in connection with the finalization of an
external financing agreement with Astaris, the company provided an agreement to
lenders of Astaris under which FMC has agreed to make equity contributions to
Astaris sufficient to make up one half of any short-fall in Astaris' earnings
below certain levels. Astaris' earnings did not meet the agreed levels for the
first half of 2002. FMC does not expect that such earnings will meet the levels
agreed for the remainder of 2002. The company contributed $31.3 million to
Astaris under this arrangement in 2001 and $12.6 million in the first half of
2002, and expect the full year amount to be at approximately the same level as
2001. FMC estimates of future contributions are based on Astaris forecasts and
are subject to some uncertainty. The proportional amount of Astaris indebtedness
subject to this lending agreement from FMC was $104.5 million at June 30, 2002.
Certain amendments to the agreement under which FMC makes equity contributions
to Astaris may be required to complete new financing arrangements FMC is
contemplating. FMC expects to obtain consents from Astaris' lenders to any
required amendments.
-11-
The company provides guarantees to financial institutions on behalf of certain
Agricultural Products customers, principally in Brazil, for their seasonal
borrowing. The customers' obligations to FMC are largely secured by liens on
their crops. Losses under these programs have been minimal. The total of these
guarantees at June 30, 2002 and December 31, 2001 was $35.4 million and $56.0
million, respectively.
The company also provides guarantees to financial institutions on behalf of
certain Agricultural Products customers in Brazil to support their importation
of third party agricultural products. This guarantee program was implemented in
2001. Guarantees totaled $10.0 million at June 30, 2002 and at December 31,
2001.
On June 30, 1999, FMC acquired Tg Soda Ash, Inc. from Elf Atochem North America,
Inc. for approximately $51.0 million in cash and contingent payment due at
year-end 2003. The contingent payment amount, which will be based on the
financial performance of the combined soda ash operations between 2001 and 2003,
cannot currently be determined precisely but is expected to be in the range of
$40.0 million to $45.0 million.
During the quarter FMC reached a settlement with the Idaho Public Utility
Commission and Idaho Power Company. Under this settlement, Idaho Power will
reduce its payments under the resale contract, and as a partial offset, Astaris
will avoid certain costs associated with the cancellation of the power purchase
contract with Idaho Power.
In the ordinary course of business, FMC provides credit support to governmental
agencies, insurance companies, and others for its environmental obligations,
self-insurance programs and other future business commitments. At June 30, 2002,
banks had provided letters of credit totaling $129.0 million and insurance
companies had provided surety bonds totaling $72.6 million in support of these
obligations.
The company also has certain other contingent liabilities arising from
litigation, claims, performance guarantees, and other commitments arising in the
ordinary course of business. Management believes that the ultimate resolution of
its known contingencies will not materially affect the consolidated financial
position, results of operations or cash flows of FMC.
-12-
Note 17: Segment Information
Three Months Ended Six Months Ended
June 30, June 30,
- -------------------------------------------------------------------------------------------------------------------------
(in millions) 2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------------------------
Revenue
- -------------------------------------------------------------------------------------------------------------------------
Agricultural Products $173.8 $ 205.8 $304.9 $ 340.4
Specialty Chemicals 124.6 119.5 240.4 235.8
Industrial Chemicals 185.3 200.3 373.6 398.9
Eliminations (1.3) (2.4) (2.3) (4.7)
- -------------------------------------------------------------------------------------------------------------------------
Total $482.4 $ 523.2 $916.6 $ 970.4
=========================================================================================================================
Income (loss) from continuing operations before income taxes
and cumulative effect of change in accounting principle
Agricultural Products $ 23.7 $ 41.4 $ 30.0 $ 55.2
Specialty Chemicals 24.2 21.0 42.4 41.0
Industrial Chemicals 12.2 18.2 35.3 32.6
- -------------------------------------------------------------------------------------------------------------------------
Segment operating profit 60.1 80.6 107.7 128.8
Corporate (9.3) (8.0) (19.3) (17.4)
Other expense, net (1.9) (2.0) (5.4) (4.0)
- -------------------------------------------------------------------------------------------------------------------------
Operating profit before restructuring and other charges, and net
interest expense 48.9 70.6 83.0 107.4
Asset impairments (1) -- (323.1) -- (323.1)
Restructuring and other charges (2) (7.4) (175.0) (14.4) (176.0)
Net interest expense (3) (18.4) (16.4) (35.5) (32.4)
- -------------------------------------------------------------------------------------------------------------------------
Total $ 23.1 $(443.9) $ 33.1 $(424.1)
=========================================================================================================================
(1) Asset impairment for the three months ended June 30, 2001 related to
Industrial Chemicals ($224.2 million) and Specialty Chemicals ($98.9
million).
(2) Restructuring and other charges for the three months ended June 30, 2002
related to Industrial Chemicals ($2.2 million) and Corporate ($5.2
million). Restructuring and other charges for the six months ended June 30,
2002 related to Industrial Chemicals ($5.6 million), Agricultural Products
($2.4 million) and Corporate ($6.4 million). Restructuring and other
charges for the six months ended June 30, 2001 related to Industrial
Chemicals ($166.8 million), Specialty Chemicals ($0.9 million) and
Corporate ($8.3 million).
(3) Net interest expense includes the Company's share of interest expense of
the phosphorous joint venture for the three months ($1.4 million) and six
months ($ 3.1 million) ended June 30, 2002 and for the three months ($1.0
million) and six months ($2.6 million) ended June 30, 2001. The equity in
earnings (loss) of the joint venture, excluding restructuring charges, is
included in Industrial Chemicals.
-13-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Item 2 of this report contains certain forward-looking statements that are based
on management's current views and assumptions regarding future events, future
business conditions and the outlook for the company based on currently available
information.
Whenever possible, we have identified these forward-looking statements by such
words or phrases as "will likely result", "is confident that", "expects",
"should", "could", "may", "will continue to", "believes", "anticipates",
"predicts", "forecasts", "estimates", "projects", "potential", "intends" or
similar expressions identifying "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995, including the negative
of those words or phrases. Such forward-looking statements are based on our
current views and assumptions regarding future events, future business
conditions and the outlook for our company based on currently available
information. The forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
expressed in, or implied by, these statements. These statements are qualified by
reference to the section "Forward-Looking Statements" in Part II of the
company's Annual Report on Form 10-K for the fiscal year ended December 31,
2001. We wish to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made.
We further caution that the list of risk factors in the above referenced section
of our form 10-K factors may not be all-inclusive, and we specifically decline
to undertake any obligation to publicly revise any forward-looking statements
that have been made to reflect events or circumstances after the date of such
statements or to reflect the occurrence of anticipated or unanticipated events.
LIQUIDITY AND CAPITAL RESOURCES
During the first half of 2002 events affecting our liquidity included:
. Spending against restructuring reserves of $47.9 million, including
spending to shutdown our Pocatello plant;
. Paying $35.4 million for the scheduled maturities of long-term debt;
. Redeeming all of the $28.8 million principal amount outstanding of our
6.75% exchangeable senior subordinated debentures;
. Issuing 3.25 million shares of common stock with net proceeds of
$101.3 million used to repay outstanding borrowings under our $240.0
million committed revolving credit facility.
Liquidity
Cash and cash equivalents at June 30, 2002 and December 31, 2001 were $50.3
million and $23.4 million, respectively.
Cash used in operating activities was $67.8 million for the six months ended
June 30, 2002 compared to $107.6 million for the first six months of 2001.
Included in our cash used in operations in 2002 is $47.9 million for spending on
restructuring activities, including $17.0 million for the shutdown of Pocatello
(see Note 8 of our condensed consolidated financial statements). There was no
material spending related to restructuring in the first six months of 2001. The
future spending against restructuring reserves of $57.6 million at June 30, 2002
for the shut down and remediation of Pocatello is expected to continue through
2007 with progressively less spent in each of the future years.
Cash required by discontinued operations for the six months ended June 30, 2002
and 2001 was $19.7 million and $89.4 million, respectively. The majority of the
spending for our discontinued operations is for environmental remediation on
discontinued sites and post-employment benefits for former employees of
discontinued businesses. The first six months of 2001 also included an $80.0
million payment in the settlement of litigation related to our discontinued
Defense Systems business.
Cash required by investing activities was $36.9 million for the six months ended
June 30, 2002 compared to $97.4 million for the six months ended June 30, 2001.
The majority of this spending related to capital additions to our property,
plant and equipment to maintain operating standards and comply with environment,
health and safety regulations. Additionally, 2001 included $42.1 million for
spending on environmental remediation assets at Pocatello. The fourth quarter
decision to shut down Pocatello enabled us to curtail this spending.
Cash provided by financing activities for the first six months of 2002 of $150.3
million decreased by $158.1 million when compared to cash provided by financing
activities of $308.4 million for the first six months of 2001. Our 2001
financing activities included $393.8 million from the initial public offering
("IPO"), net of contributions to Technologies to support operating cash needs of
Technologies. The current year's activity reflects increased short-term
borrowings through our revolving credit facility
-14-
resulting from a decrease in the availability of funds from our accounts
receivable financing and commercial paper programs. Financing sources from
short-term borrowings were supplemented by proceeds of $101.3 million (net of
issuance costs) for the issuance of 3.25 million shares of common stock, in the
second quarter of 2002. Proceeds from this offering were used to reduce
outstanding borrowings under our $240 million committed revolving credit
facility. We made payments of $10.4 million and $25.0 million in the first and
second quarters of 2002, respectively, for scheduled maturities of long-term
debt. We also made before-tax payments of $32.5 million to redeem all
outstanding 6.75% exchangeable senior subordinated debentures (see Note 9 of our
condensed consolidated financial statements).
On June 7, 2002 Standard & Poor's Corporation's Ratings Group ("S&P") reaffirmed
its investment-grade ratings of BBB- of our long-term debt and A-3 of our
short-term debt. On June 13, 2002, Moody's lowered its rating of our long-term
debt from an investment-grade level of Baa3 to a non-investment-grade level of
Ba1 and similarly lowered our short-term debt rating from P-3 to NP. We seek to
maintain access to a variety of financing sources taking into account that
Moody's and S&P may change, including lowering or withdrawing, their ratings of
our debt at any time. Subsequent to the action by Moody's, we ceased offerings
under our commercial paper program and repaid maturities through borrowings
under our $240.0 million committed revolving credit facility. Also resulting
from the downgrade in our credit rating was a decrease in availability under our
accounts receivable financing program. (See Note 9 of our condensed consolidated
financial statements.)
Certain commitments that could affect our liquidity include the following:
. In connection with the spin-off of Technologies, we retained liability
for various contingent obligations totaling $289.0 million at December
31, 2001. Contractual releases obtained by FMC have reduced this
amount to $127.1 million at June 30, 2002. We expect this amount to
decline further in the second half of 2002. Contingent obligations
include guarantees of the performance of Technologies under various
customer contracts, reimbursements on behalf of Technologies under
letters of credit, and guarantees of indebtedness of Technologies. We
have a guarantee from Technologies providing for reimbursement to us
if we are ever called upon to satisfy these obligations. Because of
our expectation that the underlying obligations will be met and the
existence of the guarantee from Technologies, we believe it is
unlikely that we would have to pay any of these contingent
obligations. We expect the contingent liabilities to continue to be
reduced throughout 2002, with the majority of the obligations expected
to expire before the end of 2003.
. We have provided an agreement to lenders of Astaris under which we
have agreed to make equity contributions to Astaris sufficient to make
up one half of any shortfall in Astaris earnings below certain levels.
Astaris' earnings did not meet the agreed levels for 2001 and we do
not expect that such earnings will meet the levels agreed for 2002. We
contributed $31.3 million to Astaris under this arrangement in 2001
and an additional $12.6 million in the second quarter of 2002. We
expect our total 2002 contributions to be an amount similar to the
2001 payments. Our estimates of future contributions are subject to
some uncertainty. The proportional amount of Astaris' indebtedness
subject to this agreement from FMC was $104.5 million at June 30,
2002. Certain amendments to the agreement under which we make equity
contributions to Astaris may be required to complete our new financing
arrangements. We expect to obtain consents from Astaris lenders to any
amendments we will require.
. In the ordinary course of business, we provide credit support to
governmental agencies, insurance companies, and others for our
environmental obligations, self-insurance programs and other future
business commitments. At June 30, 2002, banks had provided letters of
credit totaling $129.0 million and insurance companies had provided
surety bonds totaling $72.6 million.
. At June 30, 2002 there was $44.0 million principal amount outstanding
of variable rate industrial and pollution control revenue bonds
supported by bank letters of credit. The letters of credit generally
have a term of thirteen months and extend each month for an additional
month unless and until the bank sends us a letter of non-renewal. No
such notices had been received for the letters of credit outstanding
at June 30, 2002.
. We provide guarantees to financial institutions on behalf of certain
Agricultural Products customers, principally in Brazil, for their
seasonal borrowing. The customers' obligations to us are largely
secured by liens on their crops. The total of these guarantees at June
30, 2002 decreased to $35.4 million from $56.0 million at December 31,
2001. We also provide guarantees to financial institutions on behalf
of certain Agricultural Products customers in Brazil to support their
importation of third-party agricultural products. These guarantees
totaled $10.0 million at June 30, 2002 and at December 31, 2001 (see
Note 16 to the condensed consolidated financial statements).
The ratings action by Moody's discussed above left our rating under review for a
possible further downgrade. An additional downgrade or series of downgrades in
our credit ratings, which may be changed, superseded or withdrawn at any time,
could increase the cost and restrict the availability of future financings. The
following table displays credit facilities, debt obligations
-15-
and other items along with the cash payments that could be required to be repaid
following a downgrade or series of downgrades in our credit rating:
Potential
Cash
Payments
(as of
June 30,
Facility 2002)
- -------- -------------
(In millions)
Accounts receivable financing(1) ............................... $84.8
Forward energy contracts ....................................... $10.5
(1) Program terminates upon a reduction in rating to Ba2 by Moody's or BB by
S&P or below.
Capital Resources
We obtain funds through an accounts receivable financing program. We sell
receivables, without recourse, through our wholly owned bankruptcy-remote
subsidiary, FMC Funding Corporation, which then sells the receivables to an
unrelated finance company. The sold receivables and repurchase obligations
related to the financing are not recorded on our consolidated balance sheets.
The Moody's downgrade has reduced the funds available to us from this program.
Funds from the accounts receivable financing totaled $84.8 million at June 30,
2002, $79.0 million at December 31, 2001 and $112.0 million at June 30, 2001.
Subsequent to June 30, 2002 we extended the term of this facility through August
2003.
At June 30, 2002 we had total borrowings of $958.3 million compared to
borrowings of $923.5 million as of December 31, 2001.
Our 364-day $240.0 million committed revolving credit facility will expire in
December 2002. The total amount outstanding under this facility at June 30, 2002
was $170.0 million compared to $68.0 million at December 31, 2001. We expect to
renew or replace this credit facility prior to its expiration on December 6,
2002. In January 2002, we obtained a supplemental $50.0 million committed credit
facility to meet short-term seasonal financing needs. This credit facility has
been amended to reduce availability to $25 million and will expire at August 31,
2002. There were no outstanding borrowings during the quarter ended June 30,
2002 under this facility. As of June 30, 2002, we were in compliance with all
financial covenants on both facilities.
Our future cash needs include the scheduled repayment of several significant
financings over the next two years ($99.5 million remaining in 2002 and $182.2
million in 2003), the expiration of our committed revolving credit facilities,
operating cash requirements, special-items spending, capital expenditures and an
expected contingent payment, due at year-end 2003 related to our acquisition of
Tg Soda Ash (see Note 16 to our condensed consolidated financial statements). We
plan to meet these liquidity needs through cash generated from operations,
borrowings under bank credit facilities and the issuance of additional long-term
debt.
Our ability to pay the principal and interest on our indebtedness as it comes
due will depend upon our current and future performance. Our performance is
affected by general economic conditions and by financial, competitive,
political, business and other factors. Many of these factors are beyond our
control. We believe that the cash generated from our businesses coupled with our
ability to obtain financing will be sufficient to enable us to make our debt
payments as they become due. We are finalizing our refinancing plans and expect
to have our financing completed prior to the bond maturities and the expiration
of our committed revolving credit facility in the fourth quarter. In connection
with our upcoming financing, we expect to grant some form of security interest
in favor of the lenders. Some portion of the obligations currently backed by
letters of credit and surety bonds may, upon completion of our refinancing, be
secured by cash-collateralized trusts. No assurance can be given that any
financing can be completed when needed or that we will be able to negotiate
acceptable terms. In addition, our access to capital is affected by prevailing
conditions in the financial and equity markets.
-16-
DERIVATIVE FINANCIAL INSTRUMENTS AND MARKET RISKS
Our primary financial market risks include changes in foreign currency exchange
rates, interest rates and commodity pricing. In managing our exposure to these
risks, we may use derivative financial instruments in accordance with
established policies and procedures. We account for these derivatives in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 133
(see "Recently Adopted Accounting Pronouncements" and Note 1 to our 2001
consolidated financial statements). We do not use derivative financial
instruments for trading purposes. At June 30, 2002, our derivative holdings
consisted primarily of foreign currency forward contracts and natural gas
forward contracts.
When we sell or purchase products or services outside the United States,
transactions are frequently denominated in currencies other than the U.S.
dollar. Exposure to variability in currency exchange rates is mitigated, when
possible, with natural hedges, whereby purchases and sales in the same foreign
currency and with similar maturity dates offset one another.
A significant portion of our business is conducted in currencies other than the
U.S. dollar, which is our reporting currency. We recognize foreign currency
gains and losses arising from our operations in the period incurred. As a
result, currency fluctuations among the U.S. dollar and the currencies in which
we do business have caused and will continue to cause foreign currency
transaction gains and losses, which could be material. Due to the weakness of
the euro in the period from 1999 through 2001, our business results have been
adversely affected by unfavorable U.S. dollar translation of earnings of our
operations in Europe. The recent increases in the euro have not significantly
impacted our European operations in 2002. We cannot predict the effects of
exchange rate fluctuations upon our future operating results because of the
number of currencies involved, the variability of currency exposures and the
potential volatility of currency exchange rates. We take actions to manage our
foreign currency exposure such as entering into forwards and swaps, where
available, but we cannot ensure that our strategies will adequately protect our
operating results from the effects of exchange rate fluctuations.
The maturity dates of the currency exchange agreements that provide hedge
coverage are consistent with those of the underlying purchase or sales
commitments.
We are exposed to changes in interest rates because of our financing and cash
management activities, which include long-term and short-term debt to maintain
liquidity and fund our business operations. In managing interest rate risk, our
strategic policy is to monitor the ratio of our fixed- to floating-rate debt. We
may, from time to time, use interest rate swaps to manage our exposure to
changes in interest rates. We did not enter into any material interest rate
swaps in 2002.
To address our exposure to risks from changes in commodity prices, we enter into
forward contracts relating to energy purchases used in our manufacturing
processes for approximately 80% to 90% of our total energy usage. The forward
energy contracts qualifying as hedges are accounted for in accordance with SFAS
No. 133. The gains or losses on these contracts are included as an adjustment to
the cost of sales or services when the contracts are settled. (See Note 5 to our
condensed and consolidated financial statements.)
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Prior to January 1, 2002 we amortized goodwill and identifiable intangible
assets (such as trademarks) on a straight-line basis over their estimated useful
lives not to exceed 40 years. The recoverability of the net book value of these
assets was periodically reviewed based on the expected future undiscounted cash
flows.
On January 1, 2002 we adopted SFAS No. 142, "Goodwill and Other Intangible
Assets." With the adoption of SFAS No. 142, goodwill and other indefinite
intangible assets ("intangibles") are no longer subject to amortization, rather
they are subject to at least an annual assessment for impairment by applying a
fair value based test. In the second quarter we completed the transitional
goodwill and indefinite life intangibles impairment tests required by SFAS No.
142. FMC recorded no impairments of its goodwill and indefinite life intangibles
based on the fair value test conducted in the second quarter of 2002. We will
continue its impairment tests on goodwill based on fair value each year,
beginning in the fourth quarter of 2002, in accordance with the requirements of
SFAS No. 142.
Goodwill amortization was $4.2 million, or $0.14 per diluted share in 2001.
Goodwill amortization for the three and six months ended June 30, 2001 was $1.0
million or $0.03 per diluted share and $2.1 million or $0.07 per diluted share,
respectively. Goodwill amortization for the three and six months ended June 30,
2002 would have been approximately $1.0 million and $2.1 million, respectively.
Goodwill at June 30, 2002 and December 31, 2001 was $123.0 million and $113.5
million, respectively. The majority of FMC's goodwill is attributed to an
acquisition in the Specialty Chemicals segment. There are no material indefinite
life intangibles, other
-17-
than goodwill, at June 30, 2002.
FMC's definite life intangibles totaled $7.5 million as of June 30, 2002. At
June 30, 2002 these definite life intangibles are allocated among our business
segments as follows: $3.4 million in Agricultural Products, $2.7 million in
Specialty Chemicals and $1.4 million in Industrial Chemicals. All definite life
intangible assets are amortizable and consist primarily of patents, industry
licenses and other intangibles.
On January 1, 2002 we adopted SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." This Statement establishes a single accounting model, based on
the framework established in SFAS No. 121, for long-lived assets to be disposed
of by sale. The Statement retains most of the requirements of SFAS No. 121
related to the recognition of the impairment of long-lived assets to be held and
used. There was no impact of adopting SFAS No. 144 in the first six months of
2002.
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements Nos.
4, 44 and 64, Amendment of FASB No. 14, and Technical Corrections." The
Statement rescinds or amends a number of existing authoritative pronouncements
to make various technical corrections, clarify meanings, or describe their
applicability under changed conditions. In the second quarter of 2002, with the
retirement of its Meridian Gold debentures, we elected to early adopt SFAS No.
145. We recorded a $3.1 million loss ($1.9 million after-tax) related to the
early retirement of these debentures in our total costs and expenses from
operations in accordance with this statement.
On January 1, 2001, we implemented SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138
(collectively, the "Statement"). The Statement requires FMC to recognize all
derivatives in the consolidated balance sheets at fair value, with changes in
the fair value of derivative instruments to be recorded in current earnings or
deferred in other comprehensive income, depending on the type of hedging
transaction and whether a derivative is designated as an effective hedge. In
accordance with the provisions of the Statement, we recorded a first-quarter
2001 loss from the cumulative effect of a change in accounting principle of $0.9
million after-tax in our consolidated statement of earnings, and a deferred gain
of $16.4 million after-tax in accumulated other comprehensive loss.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. We are required to adopt the provisions
of this pronouncement no later than the beginning of 2003 and are evaluating the
potential impact of adopting SFAS No. 143.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This standard addresses the accounting and
reporting for costs of so-called exit activities (including restructuring) and
for the disposal of long-lived assets. The standard changes some of the criteria
for recognizing a liability for these activities. It is effective beginning in
2003 with the liability recognition criteria under the standard applied
prospectively. We are expecting to adopt SFAS No. 146 when required and are
currently evaluating the potential impact of adoption on our accounting policies
regarding exit and disposal activities.
RESULTS OF OPERATIONS
General
All results discussed in this analysis address the continuing results of our
chemical businesses. The results of Technologies, which was spun-off on December
31, 2001, have been reclassified to discontinued operations within our
consolidated statement of income for the three and six months ended June 30,
2001 and consolidated statement of cash flow for the six months ended June 30,
2001. See Note 2 to our condensed consolidated financial statements for an
overview of our reorganization and spin-off of Technologies.
Earnings from continuing operations before cumulative effect of a change in
accounting principle for the three and six months ended June 30, 2002 were $19.2
million and $28.2 million, respectively, compared to losses of $298.9 million
and $284.5 million for the three and six months ended June 30, 2001. Income from
continuing operations excluding special items for the three and six months ended
June 30, 2002 was $23.8 million and $37.0 million, respectively, or $0.71 per
share and $1.12 per share, on a diluted basis. This compared to $40.9 million
and $57.3 million for the three and six months ended June 30, 2001 or $1.27 per
share and $1.78 per share. Special items include restructuring and other charges
for 2002 and restructuring and other charges and
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asset impairments for 2001. Restructuring and other charges totaled $7.4
million for the second quarter of 2002 compared to $175.0 million in the prior
year's quarter. Restructuring and other charges for the six months ended June
30, 2002 were $14.4 million compared to $176.0 million for the same period in
2001. Asset impairments for the three and six months ended June 30, 2001 were
$323.1 million.
The following table displays the results for the three and six months ended June
30, 2002 and 2001 through a reconciliation between as reported income from
continuing operations before cumulative effect of change in accounting principle
and income from continuing operations before cumulative effect of change in
accounting principle, excluding special items:
($in millions) Three Months Ended Six Month Ended
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
Income (loss) from continuing operations before cumulative
effect of change in accounting principle - as reported $ 19.2 $(298.9) $ 28.2 $(284.5)
Asset impairments -- 323.1 -- 323.1
Restructuring and other charges 7.4 175.0 14.4 176.0
Tax effect of restructuring and other charges (2.8) (158.3) (5.6) (157.3)
------ ------- ------ -------
Income from continuing operations before cumulative
effect of change in accounting principle, excluding special items $ 23.8 $ 40.9 $ 37.0 $ 57.3
====== ======= ====== =======
RESULTS OF OPERATIONS - Quarters ended June 30, 2002 compared to June 30, 2001
Revenue. Second quarter 2002 revenue decreased to $482.4 million, or 8.0%, as
compared to $523.2 million in the prior year's quarter. Lower revenue in 2002
when compared with 2001 was principally attributable to sales delays due to
unfavorable weather, distributor inventory reductions and the refocusing of our
product lines within our Agricultural Products business segment. Also affecting
revenue was the loss of a major European detergent customer at our Spanish
subsidiary, Foret, within our Industrial Chemicals segment. Offsetting the sales
decline were strong sales in Special Chemicals driven by both BioPolymer and
lithium.
Selling, general and administrative expenses were $57.7 million for the second
quarter of 2002 compared to $63.9 million in the second quarter of 2001, down
nearly 10%. Lower expenses can be attributed to our efforts to reduce costs
through restructuring and cost reduction plans.
Research and development costs of $20.4 million in 2002 decreased by almost 20%
compared to 2001 costs of $25.3 million. Our refocusing efforts in Agricultural
Products, as well as our other 2002 and 2001 restructuring efforts, have
fostered these cost decreases.
Income from continuing operations, before the cumulative effect of a change in
accounting principle was $19.2 million compared to a loss of $298.9 million in
the second quarter of 2001. The majority of this increase can be attributed to
higher restructuring and other charges and asset impairments in 2001 compared to
2002, somewhat offset by weaker sales in 2002.
Restructuring and other charges totaled $7.4 million compared to $175.0 million
in the prior year's quarter. We are reacting to the continued economic weakness
in the markets served by our Industrial Chemicals business segment by further
reducing costs in the second quarter. As a result, we recorded $2.2 million of
restructuring charges related to severance and other costs in our Industrial
Chemicals segment related to this plan. We also recorded a $2.1 million charge
in the second quarter for several minor restructuring activities including
transition costs related to a change in benefits provider, which was a direct
result of our spin-off of Technologies (see Note 2 to our condensed consolidated
financial statements.) The remaining balance of $3.1 million recorded in the
quarter can be attributed to the redemption of our 6.75% of Senior Subordinate
Debentures completed on June 3, 2002.
(See Note 9 to our condensed consolidated financial statements.)
During the second quarter of 2001, we recorded $175.0 million in restructuring
and other charges including $160.0 million related to our Industrial Chemicals
segment's U.S. based phosphorus business. The components included in
restructuring and other charges related to the phosphorus business were as
follows: a $68.7 million reserve for the further required Consent Decree
spending at the Pocatello site; $42.7 million of financing obligations to the
Astaris joint venture and other related costs; a $40.0 million reserve for
payments to the Shoshone-Bannock Tribes; and $8.6 million of other related
charges. In addition, restructuring charges for the quarter included $8.0
million related to our corporate reorganization. The remaining charges of $7.0
million were for the restructuring of two smaller chemical facilities. We
reduced our workforce by approximately 135 people in connection with these
restructuring activities.
Corporate expenses (excluding restructuring and other charges) were $9.3 million
compared to an allocated $8.0 million in the second quarter of 2001.
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Net interest expense for the quarter was $17.0 million compared to $15.4 million
allocated in the prior year's quarter (See Note 2 to our condensed consolidated
financial statements.) Interest expense was higher in the quarter primarily
because the average daily debt levels were higher in the second quarter of 2002
compared to 2001.
Provision for income taxes was $3.9 million in the second quarter of 2002
compared to a benefit of $145.0 million in the prior year resulting in effective
tax rates of 16.9% and 32.7%, respectively. The 2002 rate results largely from
the effect of restructuring charges. Our provision for income taxes on income
from continuing operations before special items was $6.7 million or 22.0% for
the current quarter and $13.3 million or 24.5% for the prior year's quarter.
Discontinued operations. We recorded a loss from discontinued operations of $0.9
million in the second quarter of 2001 related to the spin-off of Technologies.
Included in this amount are losses of our spun-off Technologies business,
including after-tax interest expense of $4.4 million, which was allocated to
discontinued operations in accordance with Accounting Principles Board Statement
No. 30 and later relevant accounting guidance.
Net Income (loss). We recorded net income of $19.2 million for the second
quarter of 2002 compared to a net loss of $299.8 million in the second quarter
of 2001. This variance reflects the impact of several special items discussed
above under restructuring and other charges and asset impairments.
Average shares outstanding used in the quarter's diluted earnings (loss) per
common share calculations were 33.6 million in 2002 compared with 31.2 million
in the prior year's quarter. Additional weighted average shares of 1.2 million,
assuming conversion of stock awards, for the quarter ended June 30, 2001 were
not included in the computation of diluted earnings per share as their effect
would be antidilutive.
SEGMENT RESULTS - Quarters ended June 30, 2002 compared to June 30, 2001
Segment operating profit is presented before taxes and restructuring and other
charges. Information about how each of these items relates to our businesses at
the segment level is discussed below, in Note 17 of our condensed consolidated
financial statement filed in this 10-Q and Note 20 of our consolidated financial
statements on Form 10-K for the year ended December 31, 2001.
Agricultural Products
Agricultural Products' revenue for the quarter ended June 30, 2002 was $173.8
million, down from $205.8 million in last year's quarter. Our refocusing efforts
have led to a decline in sales of our older insecticides, such as carbamates,
which we had expected to be offset by our label expansion of newer chemistries
such as zeta-cypermethrin and carfentrazone. However, working capital reduction
efforts by North American distributors and wet weather conditions in the Midwest
delayed the impact of these sales to the third quarter. Economic uncertainty and
industry initiatives to reduce working capital in Brazil have also resulted in a
shifting of sales closer to the growing season, which begins in the third and
fourth quarters. Asian markets experienced lower sales compared to 2001 due to
lower insecticide sales from poor pest pressures in the Australian cotton market
and wet growing conditions in China.
Earnings for the three months ended June 30, 2002 were $23.7 million down from
$41.4 million in the same period last year. The primary reason for this decline
was a lack of a $10.0 million profit protection payment from DuPont, which we
received in 2001 as compensation for DuPont's decision to cease sulfentrazone
purchases. Additionally, reduced earnings on lowered sales were somewhat offset
by lower costs. Our continued efforts to reduce costs are on track to meet our
projected annualized savings of $20.0 million. However we did incur higher
manufacturing costs in the quarter resulting from the idling of the
sulfentrazone plant at the end of the first quarter of 2002.
Specialty Chemicals
Specialty Chemicals' revenue for the quarter ended June 30, 2002 were $124.6
million, up from $119.5 million in the prior year period. Revenue reflected
increased BioPolymer sales in all markets, partially offset by unfavorable
product mix in both the food ingredients and pharmaceutical markets. Strong
butyllithium and specialty organics demand in the polymer and pharmaceutical
markets partially offset by lower volumes in upstream commodity markets resulted
in increased lithium sales in the second quarter of 2002.
Earnings of $24.2 million in the quarter were up from $21.0 in the prior year's
quarter. Higher earnings can be attributed to strong volume growth in all
BioPolymer markets and higher margins in BioPolymer's specialty business. Also
affecting earnings were lower lithium manufacturing costs from the devaluation
of the Argentina pesoand, for BioPolymer, the favorable impact of the
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required change in accounting for goodwill amortization (see "Recently Adopted
Accounting Pronouncement").
Industrial Chemicals
Industrial Chemicals' second quarter 2002 revenue of $185.3 million was lower
than last year's revenue of $200.3 million. FMC Foret saw a decrease in revenue
in the second quarter of 2002 when compared to 2001 due in part to the loss of a
major European customer and generally lower selling prices. Alkali revenue
decreased from the 2001 quarter reflecting lower soda ash sales due to lower
caustic prices, a substitute for soda ash. Also affecting alkali sales were
weaker downstream product sales, as well as the lack of cyanide sales following
our first quarter of 2002 sale of this business. In peroxygens revenue was down
for the quarter compared to the prior year's quarter due to lower hydrogen
peroxide volumes and prices in our pulp and paper markets which were somewhat
offset by higher sales in non-pulp markets. Stronger sales of peracetic acid
were offset by lower persulfate volumes and prices in the printed circuit board
markets due to the economic slowdown in the electronics sector.
Earnings for the second quarter of 2002 were $12.2 million compared to $18.2
million in the prior year's quarter. A major European customer loss at Foret,
lower soda ash volumes, weakness in the pulp markets and depressed results in
our Astaris joint venture all contributed to the second quarter earnings
decline. Somewhat offsetting these factors were continued cost savings from
lower environmental spending at Pocatello and lower operating costs.
Astaris earnings decreased compared to the prior year's quarter due primarily to
lower payments from the power resale to Idaho Power Company. Earnings were also
depressed due to the continued difficulties at its purified phosphoric acid
("PPA") plant resulting in higher manufacturing costs and lower than expected
production, which forced Astaris to purchase higher-cost raw materials from
third party providers. During the quarter we reached a settlement with the Idaho
Public Utility Commission and Idaho Power Company. Under this settlement, Idaho
Power will reduce its payments under the resale contract, and as a partial
offset, Astaris will avoid certain costs associated with the cancellation of the
power purchase contract with Idaho Power.
The current manufacturing slowdown continues to significantly impact those
markets served by our Industrial Chemicals segment and has led to our continued
restructuring efforts within the segment.
RESULTS OF OPERATION - Six months ended June 30, 2002 compared to six months
ended June 30, 2001
Revenue for the six-months ending June 30, 2002 decreased to $916.6 million, or
5.5 %, compared to $970.4 million in the prior year's period. Lower revenue in
2002 when compared with 2001 was principally attributable to sales delays due to
weather and a decrease in sulfentrazone sales within our Agricultural Products
business segment. Also affecting revenue was the loss of a major European
detergent customer at our Spanish subsidiary, Foret, within our Industrial
Chemicals segment.
Selling, general and administrative expenses were $115.5 million for the first
half of 2002 compared to $125.6 million in the in the first half of 2001. Lower
expenses can be attributed to our overall efforts to reduce costs through
restructurings and cost reduction plans.
Research and development costs of $41.0 million in 2002 decreased by 16.0%
compared to 2001 costs of $48.9 million. The aforementioned restructuring
efforts as well as our refocusing within Agricultural Products resulted in
reduced costs for 2002.
Income from continuing operations, before the cumulative effect of a change in
accounting principle was $28.2 million for the six months ended June 30, 2002
compared to a loss of $284.5 million for the six months ended June 30, 2001. The
majority of this increase can be attributed to higher restructuring and other
charges and asset impairments in 2001 compared to 2002, somewhat offset by
weaker sales in 2002 and the lack of profit protection payments from Dupont.
Restructuring and other charges totaled $14.4 million compared to $176.0 million
in the first half of the prior year. Of these 2002 charges $2.4 million related
to severance and other costs of idling our Agricultural Product's Baltimore
sulfentrazone plant. In the Industrial Chemicals segment the mothballing of the
Granger caustic facility in Green River and other restructuring activities
resulted in $5.6 million of severance and other costs. Corporate transition
costs related to the spin-off of Technologies and other restructuring resulted
in $3.3 million of charges. The remaining balance of $3.1 million can be
attributed to the redemption of our 6.75% of Senior Subordinate Debentures
announced on May 3, 2002. (See Note 9 to our condensed consolidated financial
statements and Liquidity and Capital Resources.)
During the second quarter of 2001, we recorded $175.0 million in restructuring
and other charges including $160.0 million related to our Industrial Chemicals
segment's U.S. based phosphorus business. The components included in
restructuring and other charges related to the phosphorus business were as
follows: a $68.7 million reserve for the further required Consent Decree
spending at the Pocatello site; $42.7 million of financing obligations to the
Astaris joint venture and other related costs; a $40.0
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million reserve for payments to the Shoshone-Bannock Tribes; and $8.6 million of
other related charges. In addition, restructuring charges for the quarter
included $8.0 million related to our corporate reorganization. The remaining
charges of $7.0 million were for the restructuring of two smaller chemical
facilities.
Corporate expenses (excluding restructuring and other charges) were $19.3
million compared to an allocated $17.4 million in the same period for 2001. The
majority of this increase reflects certain transition service costs associated
with the spin-off of Technologies.
Net interest expense for the period was $32.4 million compared to an allocated
$29.8 million in the prior year's period. Interest expense was higher in 2002
because the average debt levels were higher in 2002 compared to 2001.
Provision for income taxes was $4.9 million for the six months ended June 30,
2002 compared to a benefit of $139.6 million in the prior year's period
resulting in effective tax rates of 14.8% and 32.9%, respectively. The 2002 and
2001 rates result largely from the effect of restructuring charges. Our
provision for income taxes on income from continuing operations before
restructuring and other charges was $10.5 million or 22.1% for the first six
months of 2002 and $17.7 million or 23.6% for the first six months of 2001.
Discontinued operations. We recorded a loss from discontinued operations of
$40.9 million in the first half of 2001 primarily related to the spin-off of
Technologies. Included in this amount are losses of our spun-off Technologies
business, including after-tax interest expense of $8.6 million, which was
allocated to discontinued operations in accordance with Accounting Principles
Board Statement No. 30 and later relevant accounting guidance.
Net Income (loss). We recorded net income of $28.2 million for the first six
months of 2002 compared to a net loss of $326.3 million for the first six months
of 2001. This variance reflects the impact of several special items discussed
above under restructuring and other charges asset impairments.
Average shares outstanding used in the period's diluted earnings (loss) per
common share calculations were 33.0 million in 2002 compared with 31.0 million
in the prior year's period. Additional weighted average shares of 1.3 million,
assuming conversion of stock awards, for the six months ended June 30, 2001 were
not included in the computation of diluted earnings per share as their effect
would be antidilutive.
SEGMENT RESULTS - Six months ended June 30, 2002 compared to six months ended
June 30, 2001
Segment operating profit is presented before taxes and restructuring and other
charges. Information about how each of these items relates to our businesses at
the segment level is discussed below, in Note 17 of our consolidated financial
statement filed in this 10-Q and Note 20 of our consolidated financial
statements on Form 10-K for the year ended December 31, 2001.
Agricultural Products
Agricultural Products' revenue for the six months ended June 30, 2002 was $304.9
million, down from $340.4 million in the first six months of 2001. Driving this
decrease was lower sulfentrazone herbicide sales in North American soybeans
an anticipated decline in older insecticides sales, and sales delays due to
unusually wet weather in the North American Midwest and shift in our
distribution channels in North America and Brazil to move sales closer to the
growing season. We expect to recover a portion of these sales in the third and
fourth quarters. Somewhat offsetting revenue declines were increased sales from
new labels expansions and strong specialty insecticide sales.
Earnings for the six months ended June 30, 2002 were $30.0 million down from
$55.2 million in the same period last year. The primary reason for this decline
was a lack of $20.0 million in profit protection payments from DuPont, which we
received in 2001 as compensation for DuPont's decision to cease sulfentrazone
purchases. Additionally, reduced earnings on lowered sales were somewhat offset
by lower costs.
Specialty Chemicals
Specialty Chemicals' revenue for the six months ended June 30, 2002 was $240.4
million, up from $235.8 million in the prior year's period. Revenue reflected
increased BioPolymer sales in high-end pharmaceutical markets and specialty
markets, as well as increased microcrystalline cellulose sales from our new
European distribution strategy. Strong demand for butyllithium and specialty
organics were partially offset by lower lithium exports to Japan due to a weaker
economy.
-22-
Earnings of $42.4 million for the first six months of 2002 were up from $41.0 in
the prior year's period. Higher earnings can be attributed to overall BioPolymer
growth and improved margins in BioPolymer's specialty business. Also affecting
earnings were lower lithium manufacturing costs from the devaluation of the
Argentina peso and, for BioPolymer, a $2.1 million favorable impact for the
required change in accounting for goodwill amortization. (See "Recently Adopted
Accounting Pronouncements".)
Industrial Chemicals
Industrial Chemicals' 2002 revenue of $373.6 million was lower than last year's
revenue of $398.9 million. FMC Foret saw a decrease in revenue in the first six
months of 2002 when compared to 2001 due in part to the loss of a major European
customer and generally lower selling prices. Alkali revenue decreased due to
lower soda ash volumes somewhat offset by higher domestic prices. Also affecting
Alkali operations was the lack of sodium cyanide sales following our sale of
this business in the first quarter of 2002. Peroxygens revenue decreased due to
lower hydrogen peroxide prices offset by higher volumes in non-pulp markets and
lower costs. Stronger sales of peracetic acid were offset by lower persulfate
volumes and prices in the printed circuit board markets.
Earnings for the six months ended June 30, 2002 were $35.3 million compared to
$32.6 million in the prior year. Continued cost savings from our 2002
restructuring efforts were a significant factor in the earning increase. Also
affecting the year-to-year earnings improvement was significantly lower
environmental spending at Pocatello and lower operating costs offset by PPA
startup costs at Astaris and generally lower selling prices in several
businesses. We expect improved performance from the PPA plant in the second half
of 2002.
The current manufacturing slowdown continues to significantly impact those
markets served by our Industrial Chemicals segment and has intensified our
continued efforts to reduce costs. This has resulted in the restructuring
charges of $5.6 million for the year.
-23-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information required by this item is provided in "Derivative Financial
Instruments and Market Risks," under ITEM 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations.
-24-
INDEPENDENT ACCOUNTANTS' REPORT
A report by KPMG LLP, FMC's independent accountants, on the financial statements
included in Form 10-Q for the three and six months ended June 30, 2002 is
included on page 22.
-25-
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors
FMC Corporation:
We have reviewed the condensed consolidated balance sheet of FMC Corporation and
consolidated subsidiaries as of June 30, 2002, and the related condensed
consolidated statements of income and cash flows for the three and six-month
periods ended June 30, 2002 and 2001. These condensed consolidated financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with accounting principles generally accepted in the
United States of America. We have previously audited, in accordance with
auditing standards generally accepted in the United States of America, the
consolidated balance sheet of FMC Corporation and consolidated subsidiaries as
of December 31, 2001, and the related consolidated statements of income, cash
flows and changes in stockholders' equity for the year then ended not presented
herein; and in our report dated February 14, 2002, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 2001, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
Our report dated February 14, 2002, on the consolidated financial statements of
FMC Corporation and consolidated subsidiaries as of and for the year ended
December 31, 2001, contains an explanatory paragraph that states as discussed in
Note 1 to the consolidated financial statements, the company changed its method
of accounting for derivative instruments and hedging activities in 2001.
KPMG LLP
Philadelphia, Pennsylvania
August 12, 2002
-26-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There has been no material change in the company's significant legal proceedings
from the information reported in Part I, Item 3 of the company's 2001 Annual
Report on Form 10-K.
-27-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed with this Report
1. Condensed Consolidated financial statements of FMC Corporation and its
subsidiaries are incorporated under Item 1 of this Form 10-Q.
2. All required financial statement schedules are included in the
consolidated financial statements or notes thereto as incorporated under
Item 1 of this Form 10-Q.
3. Exhibits: See attached Index of Exhibits
(b) Reports on Form 8-K
During the period beginning May 14, 2002 and ending August 14, 2002, the
registrant filed the following reports on Form 8-K or Form 8-K/A.
i. Filed June 6, 2002 - Item 5 and Item 7 Discussion of public offering of
common stock
ii. Filed June 13, 2002 - Item 5 and Item 7 Announcing of Moody's downgrade
of debt rating
iii. Filed June 14, 2002 - Item 5 and Item 7 Discussion of the impact of
Moody's downgrade
(c) Exhibits
See Index of Exhibits
-28-
INDEX OF EXHIBITS FILED WITH OR
INCORPORATED BY REFERENCE INTO
FORM 10-Q OF FMC CORPORATION
FOR THE QUARTER ENDED JUNE 30, 2002
Exhibit
No. Exhibit Description
11 Statement re Computation of Per Share Earnings
12 Statement re Computation of Ratios of Earnings to Fixed Charges
15 Management Awareness Letter of KPMG LLP
99.1 Certification of Periodic Report
99.2 Certification of Periodic Report
99.3 Statement Under Oath of Principal Executive Officer Regarding
Facts and Circumstances Relating to Exchange Act Filings
99.4 Statement Under Oath of Principal Financial Officer Regarding
Facts and Circumstances Relating to Exchange Act Filings
-29-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FMC CORPORATION
(Registrant)
By: /s/ W. KIM FOSTER
-----------------
W. Kim Foster
Senior Vice President and
Chief Financial Officer
Date: August 14, 2002
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